3.1 Money Flashcards
1
Q
what is the simplest system of exchange
A
- Barter
2
Q
Define barter
A
- Involves the direct exchange of goods and services for other goods and services without the use of money.
3
Q
what are the four problems with barter
A
- A double coincidence is required
- Time consuming
- Terms of exchange must be agreed
- It is difficult to save and borrow
4
Q
what is ment by the term ‘A double coincidence’
A
- for trade to occur, each party must have what the other wants and want what the other has.
5
Q
define terms of exchange must be agreed
A
- Two people might find that two goods or services such as bread and haircuts have different values in there opinion.
- therefore it will aslo be difficult to give change if something is more valuable than another.
6
Q
Why it is difficult to save and borrow when bartering
A
- it is difficult to save because produce can be lost also it is difficult to borrow as prices may change so it is hard to know how much to pay the lender back.
7
Q
Name the 4 functions of money
A
- medium of exchange
- measure of value
- store of value
- standard of deferred payment
8
Q
Define the term ‘medium of exchange’
A
- money provides an automatic coincidence of wants because everyone wants and accepts it.
9
Q
Define the term ‘measure of value’
A
- Money introduces a standard scale of value against hutch goods can be priced.
- therefore less time is wasted agreeing the terms of trade
10
Q
What is meant by the term ‘store of value’
A
- money retains its face value over time so people can exchange goods for money and then keep the money to spend at a future date
11
Q
What is meant by the term ‘standard of deferred payment’
A
- this function comes about from money being both a measure of value and a store of value.
12
Q
Name the 7 characteristics of money
A
- Acceptability
- Durability
- Divisibility
- Portability
- Uniformity
- Scarcity
- Difficult to forge
13
Q
Explain why a characteristic of money is Acceptability
A
- Money must be accepted by everyone.
- As they must believe in its value.
14
Q
Explain why money must be Durable (Durability)
A
- Money must not rot or perish
- Otherwise it would not maintain its value
15
Q
Explain why money must be Divisible (Divisibility)
A
- Money must be split into units of differing values
- otherwise it cannot be a measure of value
